The Value Proposition: power, information and the European Union

In last month's column, technology guru Paul Strassmann revealed how the Net provides a chance for a small number of global corporations to become more powerful. Jonathan Stephenson, Butler's UK expert on Strassmann's work, contends that US corporates are winning the information war

Ebusiness exposes small, local suppliers to a global auction which inevitably will place them at a severe disadvantage to Third World unregulated manufacturers. In the UK, we can see the global market at work, losing thousands of jobs in our home-grown car manufacturing and assembly plants within the last month. Only those companies that can operate on a global scale, outsourcing labour-intensive, resource-hungry processes to the developing nations will survive. In the article 'The B2B Tool', FORTUNE March 20, the author shows that business-to-business (B2B) auctions cut the costs of buying circuit boards by 43 per cent, and electronic car components by 14 per cent. These savings documented by US corporations are good news for their shareholders, but bad news for national economies that lose out in an auction against global competitors with negligible labour costs and next to zero government regulation. Internet auctions will have the effect of forcing out of business the smaller and environmentally friendly producers that pay good wages. Information technology allows smart companies to cut their information management costs and eliminate the coordination overheads of supply chains. Paul Strassmann has analysed the WorldScope database of 15,571 listed corporations to illustrate how the US is already at a distinct advantage. US companies make 62 per cent of the world's profits, with only 40 per cent of the information overhead. Compare this with the five other countries with GDP in excess of $1trillion. Their combined profit is only 22 per cent and information overhead is 43 per cent. Low costs of capital and lower information management costs are the key to the success of US companies. Ebusiness is just one weapon in the successful company's armoury. Employers operating in the EU know why costs of coordination are high. Just weigh the UK employer's PAYE pack each year to measure the amount of extra red tape the UK government is adding to companies - family tax credit is one example. The European Union finds time to regulate far too many aspects of our lives, often adding to national laws and standards - examples here include plumbing systems in our houses and electrical wiring. Standardisation will have the effect of allowing further globalisation of manufacturing, resulting in further concentration of profit and increased costs for householders. Unified tax and the single currency create a trading block where global companies can apply a single pricing policy, use simpler internal accounting systems and enjoy lower bank charges while exploiting markets with few indigenous competitors. Strassmann demonstrates that only a small proportion of the world's population will be able to participate in the global market. Using the World Bank 1998 database, 63 per cent of the world's Knowledge Capital is generated by 11 per cent of the world's population. All the signs are that the concentration of wealth will continue to shift in the direction of the US. Hungry for IT warriors, the US has announced an increase in the number of its H-1B visas so that by 2003 US business will have sucked in 600,000 highly skilled workers from the global pool of talent. Information technology is the weapon of choice in the fight for survival. The companies that win will be the few that truly understand how to use IT to amass Knowledge Capital and dominate their competitors through an aggressive use of the global market place. If EU companies are to survive, we need to think carefully about how we create an environment where the Internet is not used against us by international corporations intent on world domination. ** If you would like to know more about Butler Group's Strassmann assessment services, please visit the http://www.ButlerGroup.com Web site or email Jonathan.Stephenson@ButlerGroup.com